Voices

on Reporting

5 April 2023
—
kpmg.com/in
Speaker for the webinar

Ruchi Rastogi
Partner
Assurance
KPMG in India

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© 2023 KPMG Assurance & Consulting Services LLP, an Indian limited liability company and a member firm of the KPMG global organization of
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Agenda
01 Implementation of audit trail

02 Ind AS amendments

Reviews by National Financial Reporting Authority

03 (NFRA)

04 SEBI updates

05 Year-end reminders
Implementation of
audit trail
Implementation of audit trail
Regulatory requirement1

The Companies (Accounts) Rules, 2014 The Companies (Audit and Auditors) Rules, 2014
For Companies {Rule3(1)}: Every company which uses an For Auditors {Rule 11(g)}: An auditor is required to provide his/her
accounting software for maintaining its books of account, comments in the auditor’s report that the company has used such an
should use only such an accounting software which has the accounting software for maintaining its books of account which has a
following features: feature of recording audit trail (edit log) facility. Further, an auditor
• Which records an audit trail of each and every transaction should also comment on whether:

• Creates an edit log of each change made in the books of • The audit trail feature has been in operation throughout the year
account along with the date when such changes were made for all the transactions recorded in the software

• Companies would need to ensure that the audit trail is not • The audit trail feature has not been tampered with
disabled. • The audit trail has been preserved by the company as per the
statutory requirements for record retention.

• All class of companies including Section 8 companies and foreign companies

Applicability
• Auditor’s reporting on audit trail required in case of standalone financial statements and consolidated financial
statements.

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ICAI’s implementation guide 2
Accounting software
Key considerations
Accounting software that is relevant for maintaining books of account and
includes: • Applicable from 1 April 2023
• Computer programme or system that enables recording, maintenance • Deliberation on what constitutes ‘books of account’ as
per definition in the 2013 Act
and reporting of books of account and relevant ecosystem applicable to
• Identify the accounting software for creation and
business requirements
maintenance of books of account
• Multiple softwares and peripheral softwares. • Effective controls
‒ over maintenance and monitoring of audit trail in
respect of books of account
Audit trail definition
‒ operating effectively throughout the period of
• Record of the changes that have been made to the data. reporting
• Includes any change to data including creating new data, updating or ‒ periodic backups of the audit trails are taken and
deleting data that must be recorded archived as per the statutory period specified
• Extended audit procedures to be performed by auditor
• Records maintained as audit trail would include following: including involvement of specialists such as IT auditors.
 when changes were made i.e., date and time (timestamp) • IFC reporting implications and impact on auditor
reporting.
 who made the change i.e., User ID
 what data was changed i.e., data/transaction reference. • Retention of audit trail similar to the books of account
• To be enabled at accounting software/database level, where retention requirement of eight years under Section 128
applicable. of the 2013 Act.

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Ind AS
amendments

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 Ind AS amendments –An overview3
On 31 March 2023, MCA issued amendments to the Indian Accounting Standards (Ind AS). Following are few key amendments:
Effective from 1 April 2023

Ind AS 8, Accounting policies, Change in Ind AS12, Income Taxes

Ind AS1, Presentation of Financial Statements
Accounting Estimates and Errors

• Companies should now disclose material • Definition of ‘change in account estimate’
accounting policies rather than their has been replaced by revised definition of
significant accounting policies ‘accounting estimate’.
• Accounting policy information, together with • As per revised definition, accounting estimates
other information, is material when it can are monetary amounts in the financial
reasonably be expected to influence decisions statements that are subject to measurement
of primary users of general purpose financial uncertainty.
statements. • A company develops an accounting estimate to
achieve the objective set out by an accounting
policy.
• Accounting estimates include:
a) Selection of a measurement technique
(estimation or valuation technique)
b) Selecting the inputs to be used when
applying the chosen measurement
technique.
• Narrowed the scope of the Initial
Recognition Exemption (IRE) (with
regard to leases and decommissioning
obligations).
• Now IRE does not apply to
transactions that give rise to equal
and offsetting temporary differences.
• Accordingly, companies will need to
recognise a deferred tax asset and a
deferred tax liability for temporary
differences arising on transactions such
as initial recognition of a lease and a
decommissioning provision.

Consider appropriate disclosures in the financial statements for the year ended 31 March 2023 of the amendments issued but not yet
effective including assessment of possible impact in the period of initial application [Ind AS 8.30].
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Reviews by NFRA

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Reviews by NFRA -Revenue recognition and measurement4
• The National Financial Reporting Authority (NFRA) monitors the compliance with accounting standards and auditing
standards and has the power to conduct investigations.
• Recently, NFRA has issued a circular dated 29 March 2023 with respect to identified non-compliance of provisions of Ind AS
115, Revenue from Contracts with Customers and Ind AS 109, Financial Instruments.
• Following are the key takeaways from the circular:

Revenue - Recognition and measurement

 Significant accounting policies disclosed by many companies incorrectly state that revenue is recognised and
measured at fair value of the consideration received or receivable.
 Ind AS 115 requires an entity measure revenue at the transaction price excluding estimates of variable
consideration that is allocated to that performance obligations.

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Reviews by NFRA (cont.)

Trade receivables – Initial measurement

 As per Ind AS 109, all financial assets are required to be initially measured at fair value plus or minus the
transaction costs and financial assets classified as FVTPL are required to be measured at fair value.
 However, an exception to this principle is financial assets in the form of trade receivables, that would be
initially measured at transaction price (as defined in Ind AS 115) unless that contain a significant financing
component determined in accordance with Ind AS 115 (or when an entity applies the practical expedient).
 Consistency should be maintained between the accounting policy for initial measurement of trade
receivables and the accounting policy for measurement of corresponding revenue.

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SEBI updates
SEBI board meeting 5

With an aim to strengthen the securities market, on 29 March 2023, SEBI approved a slew of amendments to SEBI
Regulations.
Some of the key decisions taken pertain to the following areas:

Introduction of Other Extension of

ESG regulatory amendments timeline for
framework to LODR compliance
Regulations

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ESG regulatory framework
ESG disclosures for value ESG investing
BRSR Core ESG rating
chain
SEBI introduced a limited set of Introduction of ESG disclosures • ESG Rating Providers (ERPs) • ESG schemes to invest at least 65 per
Key Performance Indicators and assurance for the supply are required to consider cent of Asset Under Management
(KPIs) under BRSR Core on chain of companies. India/emerging market (AUM) in listed entities, where
which reasonable assurance is assurance on BRSR Core is
Applicability: parameters in ESG ratings
undertaken
required • ERPs to offer a separate
• Disclosure requirement - Top • Mandatory third-party assurance and
Applicability: Following glide 250 listed entities, on a category of ESG rating called certification would be required by Board
path is prescribed: comply-or-explain basis from as ‘Core ESG Rating’, based of Asset Management Company
o Top 150 listed entities (by FY 2024-25 and on the assured parameters (AMCs) on compliance with objective of
market capitalisation) from FY under BRSR Core. the ESG scheme
• Assurance requirement - Top
2023-24 and 250 listed entities, on a Establishing a regulatory • Enhanced disclosures on voting
framework for ERPs: SEBI to decisions with specific focus on ESG
o Gradually, applicability will be comply-or-explain basis from
introduce a regulatory framework factors
extended to the top 1,000 FY 2025-26.
listed entities by FY 2026-27. for ERPs in securities market by • Mandating disclosure of fund manager
introducing a new chapter in the commentary and case studies to
SEBI (Credit Rating Agencies) highlight application of ESG strategy is
Regulations, 1999. on the fund/investments.
• Introduction of a new scheme category,
enabling the launch of multiple
schemes on ESG related factors.

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Amendments to LODR Regulations
Disclosure of material events Strengthening corporate governance

• Quantitative threshold for determining

“materiality” of events/information • Periodic approval by shareholders for any
• Disclosure of material events/information: : special right granted to a shareholder of a
a) Outcome of meetings of board of directors: listed entity to address the issue of perpetuity
within 30 minutes from the closure of the of special rights.
meeting (currently 24 hours) • The extant mechanism of sale, lease or
b) Emanating from within the listed entity: within disposal of an undertaking of a listed entity
12 hours from the closure of the meeting outside the ‘scheme of arrangement’
(currently 24 hours). framework to be strengthened.
• Verification of market rumours: Entities would • Approval of shareholders on a periodic basis
mandatorily be required to confirm or deny or made mandatory for directors serving on the
clarify market rumours. Applicable to: board of a listed entity.
a) Top 100 listed entities with effect from 1
October 2023 and
b) Top 250 listed entities with effect from 1 April
2024.
• Disclosure for certain types of agreements
binding listed entities.

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Amendments to LODR Regulations (cont.)
Corporate governance norms for HVDLEs Compliance by Large Corporates (LCs)

• Currently large corporates are required to

• Extended the applicability of corporate
raise minimum 25 per cent of their incremental
governance norms (i.e. Regulation 16 to 27 of
borrowings in a financial year through
LODR Regulations) on ‘comply or explain’
issuance of debt securities over a contiguous
basis till 31 March 2024 (earlier 31March
block of two years from FY 2021-22 onwards.
2023).
• SEBI through its circular dated 31 March
2023, extended the compliance period to a
contiguous block of three years from FY 2021-
22 onwards.

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Other key reminders under SEBI LODR 6

Shareholders' approval requirement for re- • Expansion in the definition of ‘senior management’
appointment of a person on the board of directors or to include functional heads also (Regulation 16)
a manager (Regulation 17)
• Revised definition now aligned with the 2013 Act
requirements. It would now comprise of members of
management one level below the chief executive
officer/managing director/whole time director/manager
Disclosure of details of material subsidiaries under (including chief executive officer/manager, in case they
corporate governance in the annual report for financial are not part of the board), functional heads, company
year 2022-23 and onwards. (Schedule V) secretary and chief financial officer.

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Year-end reminders
Maintenance of daily backups of electronic records 7
Regulatory requirement

MCA amended certain provisions of the Companies (Accounts) Rules, 2014 relating to the manner in which books of accounts are to
be kept in an electronic form. The amendments are given below:
• Availability of books of account (Rule (3)(1)): Books of account and other relevant books and papers maintained in an
electronic mode should be accessible in India, at all times.
• Maintaining of backups (Rule (3)(5)): Back-up of books of account and other books and papers of a company should be
maintained on servers physically located in India on a daily basis.
• Service provider (Rule (3)(6)): Additional disclosure to the Registrar of Companies (ROC) on an annual basis where the service
provider is located outside India. These include name and address of the person in control of the books of account and other
books and papers in India.

Key considerations

• Applicable since 11 August 2022, relevant to FY 22-23

• No bright lines as to what should be construed as ‘books of account’ and ‘other relevant books and papers’
• Communication to the ROC with details of the service provider hosting books of accounts including name, IP address of physical
servers and location of servers.
• Auditors to perform extended procedures to ensure compliance
• Non-compliance will impact reporting under Section 143(3)(b) of the Companies Act, 2013

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Related party amendments 8
In November 2021, SEBI issued amendments with respect to related parties and related party transactions, implemented in phased manner –
few amendments applicable from 1 April 2022 and remaining 1 April 2023.
The key amendments are as follows:

Definition of Related Party Definition of RelatedxxParty Transactions (RPTs):

• As defined in Section 2(76) of the 2013 Act and the • Listed entity or any
Xx of its subsidiaries on one hand and a
applicable AS or Ind AS related party of •thexxlisted entity or any of its subsidiaries
• Any person or entity forming part of the ‘promoter’ or on the other hand (applicable from 1 April 2022)
promoter group’ of the listed entity (effective from 1 April
2022)​ • Listed entity or any of its subsidiaries on one hand
• Any person or any entity, holding equity shares directly or and any other person or entity on the other hand,
on beneficial interest basis at any time during the purpose and effect of which is to benefit the related
immediately preceding financial year: : party of the listed entity or any of its subsidiaries
(applicable from 1 April 2023)
i. 20 per cent or more (applicable from 1 April 2022)
ii. 10 per cent or more (applicable from 1 April 2023) Regardless of whether a price has been charged.

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 Related party amendments (contd.)
Modified from 1 April 2023 Provisions currently effective
Audit committee approval: Shareholder approval
• All RPTs and subsequent material modifications (applicable from 1 April • All material RPTs and subsequent material modifications of such
2022) transactions require prior approval of the shareholders of a listed
• A RPT to which a subsidiary of a listed entity is a party but the listed entity
entity is not a party, if the value of such transaction whether entered into • No related party can vote to approve such transactions subject to
individually or taken together with previous transaction during the certain exceptions.
financial year exceeds threshold of:
i) 10 per cent of the annual consolidated turnover as per last audited
financial statements of listed entity (applicable from 1 April 2022)
ii) 10 per cent of annual standalone turnover in as per last audited
financial statements of subsidiary (applicable from 1 April 2023).

Submission of half yearly RPT disclosure Materiality Threshold

• From 1 April 2023, on the date of publication of the standalone A RPT would be considered material, if the transaction entered
and consolidated financial results (Within 15 days from date of individually or taken together with previous transactions during a
publication till 31 March 2023). financial year:
• Exceeds INR1,000 crore or
• 10 per cent of the consolidated annual turnover of the listed entity
as per last audited financial statements
whichever is lower.

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Q&A

© 2023 KPMG Assurance & Consulting Services LLP, an Indian limited liability company and a member firm of the KPMG global organization of
independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Sources
1. Companies (Accounts) Amendment Rules, 2021 and Companies (Audit and Auditors) Amendment Rules, 2021 dated 24
March 2021 and MCA notification no. G.S.R. 235(E) dated 31 March 2022

2. ICAI issued the ‘Implementation Guide on Reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014’,
March 2023.

3. Companies (Indian Accounting Standards) Amendment Rules, 2023 dated 31 March 2023.

4. NFRA circular dated 29 March 2023.

5. SEBI board meeting press release PR No.6/2023 dated 29 March 2023.

6. SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2023 dated 17 January 2023.

7. Companies (Accounts) Fourth Amendment Rules, 2022 dated 5 August 2022.

8. SEBI LODR (Sixth Amendment) Regulations, 2021 dated 9 November 2021, SEBI circular SEBI/HO/CFD/CMD1/CIR/P/
2022/40 dated 30 March 2022 and SEBI/HO/CFD/CMD1/CIR/P/2022/47 dated 8 April 2022.

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Thank you!
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Partner Partner
Assurance Assurance
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